China is the new shiny scary thing that is all the rage for politicians to use in order to justify their outrageous freedom-infringing, high-cost initiatives. And, while the arguments against China have been bipartisan, those coming from the Republicans are the most interesting – because they at least used to stand for smaller, less intrusive government. This change in attitude started under President Trump when he imposed tariffs on Chinese goods being shipped to the U.S. – and now both the House and the Senate are enthusiastic about banning the Chinese-owned TikTok app.
Tariffs and app bans are both defensive tactics, but defense never wins a game. It is only offense that allow us to maintain dominance over China, and whichever world power is next deemed dangerous.
The secret to beating China is innovation. We need to leverage the entrepreneurial spirit of Americans and out innovate the Chinese. We need an economy that is moving so fast that no other country can keep up.
However, over the past several decades both the courts and Congress have taken steps that have weakened our patent system and made innovation harder, more costly, and more risky.
In 2006, the Supreme Court ruled in eBay v. MercExchange that an injunction should not be automatically issued based on a finding of patent infringement. In other words if a squatter moves into your house – and the courts find that the squatter has in fact taken over your property – the courts decided that you can’t necessarily kick them out. This has led to an explosion in patent infringement and weakened patents. Therefore, inventors are less likely to develop their ideas and take the initial risk of creation, and investors are less likely to invest in an idea because their investment is less secure.
The eBay ruling, along with other issues, fueled changes in the innovation market. As patents held less power inventors needed to band together in order to enforce their patents. This created a new market and gave rise to what the infringers call “patent trolls”.
Thinking that this new target sounded ominous – instead of just a symptom of bad policies – Congress set out to stop the problem, and instead made it worse. In 2012 Congress passed the American Invents Act (AIA). The AIA included the creation of a new kangaroo court that now kills 80% of the patents that come before it – while at the same time raising the cost of litigation for small inventors. What the AIA didn’t include was any language that would address the problem of patent trolls, which Congress claimed to be concerned about, stripping that language out before the bill was even introduced.
In 2014 the ruling in Alice v. CLS Bank made abstract ideas unpatentable. Since then there have been numerous fights about what the term “abstract idea” actually means in a legal context, but the end result has been that software has been harder to patent. Like the effects of the eBay decision, this has meant fewer innovators willing to put the time, effort, and money into their software projects, and it has made investors less likely to invest in startups that depend on the rocket fuel injection of cash that investors bring.
Now, China is innovating faster than us as businesses find their patent system more reliable than in the U.S. And, in the U.S. innovation is happening slower as the risk has dramatically increased and political rhetoric has moved away from being pro-inventor towards support for patent pirates.
There is no amount of defensive policy that will change this trend. China will continue to out innovate us. AI, wireless technology, computer chips, and other innovations. will continue to develop faster in China than in the U.S. And, the more restrictive and insular the U.S. becomes the more the differences will stand out. Furthermore, the more restrictive the regulatory environment becomes the harder it is for small players or start-ups to compete. Large companies are already international, they already have teams of lawyers, and they are ready to adapt – in fact they will likely be at the negotiation table helping write the regulations.
If we want innovation in our country, we need to look at the root causes that have slowed U.S. economic growth. The China Select Committee should look into these offensive solutions to the China problem instead of continuing down a defensive path that will only lead to an even less prosperous America – and a more prosperous China.
